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Abstract

This Article seeks to answer a question that has become increasingly more important as commerce moves from the tangible to the intangible—to what extent may a business use a contract to control the use of a fully paid product? The characterization of a transaction as a license or a sale determines what may be done with a product, who controls how the product may be used, and what happens in the event of a dispute. The past generation has seen a seismic shift in the way businesses distribute their products to consumers. Businesses often “license” rather than “sell” their products, and view consumers as licensees, rather than owners, of the products they buy. Customers own their print copies of books, movies, and music but merely license the same content when they purchase it in digital form. The marketplace transition from sale to license has far and wide ripple effects affecting a range of issues from innovation to the environment. The rapid emergence of the Internet of Things adds to the urgency and importance of the question— are goods licensed or sold?

The question of whether a digital product is licensed or sold is often conflated with the question of whether a product should be licensed or sold. The problem lies, in large part, with the well-intentioned but misguided turn that contract law has taken away from the intent of the parties and toward a narrow vision of efficiency. When it comes to commercial transactions, the narrow efficiency view prioritizes quantity of completed transactions over quality, ignoring consumer expectations and the way in which distrust creates uncertainty in the marketplace. This Article proposes a methodology for resolving the license v. sale conundrum that promotes a more expansive view of efficiency and brings more predictability and fairness to an increasingly muddled area of the law.

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